Murdoch's mother contests Australian tax bill

By Juliette Garside

12:01AM BST 07 Apr 2008

Rupert Murdoch's 99-year-old mother, Dame Elisabeth, is facing an estimated A$100m (£46m) tax bill incurred when her son tried to compensate her for not receiving a fair return from the family trusts, which he invested in News Corp's low yielding shares on her behalf.

Lawyers for Dame Elisabeth are appealing against a ruling by the Australian Tax Office that an A$85 (£40m) payout made to her from the family company, Cruden Investments, should be taxed.

Australia's Federal Court was told at a hearing last month that Mr Murdoch ordered the payment in November 1994 after consulting Justice Dyson Heydon. He concluded Dame Elisabeth should be paid the difference between what she would have enjoyed from high yielding stocks and the income she actually received.

This was calculated at £127m. She settled for £40m and immediately paid around £26m of that to her son, distributing the rest amongst family members and charities. In return, she agreed not to sue him for breach of trust.

According to court evidence, the payout was based on the 11 years from 1983 to 1994 when four trusts of which Dame Elisabeth is a life beneficiary, held their 8pc stake in Cruden, which in turn owned a large block of shares in News Corp.

Mr Murdoch began a process in the early 1990s of buying out his sisters and their mother from Cruden. It was during this process he discovered Dame Elisabeth had been short changed.

Mr Murdoch's lawyers thought the compensation would be tax-free because it was capital, not income. The Australian Tax Office disagreed and found it to be taxable income, a decision later backed up by Australia's Administrative Appeals Tribunal.

Dame Elisabeth has now taken her case to the Federal Court, which following last month's hearing is now considering its decision.